Alvarado says it's difficult to know just how much Lehman has invested in Texas because not all equity contributions are required to be made public. Lehman's largest Texas investment could be the $1.1-billion joint venture in 2007 in a 3.5-million-sf portfolio in Austin with Los Angeles-based Thomas Properties Group Inc.

The Lehman's move is far from being an indicator that its real estate cache is a mountain of troubled loans. "They want to save Lehman as an entity. Not all its investments or loans in real estate are bad. There's value there," Alvarado says. "Real estate debt and equity is having an effect on Wall Street banks and they are trying to find a way to remove that risk from the balance sheet."

The juxtaposition and tightening of the capital markets, though, has cost Dallas/Fort Worth its bank of entrepreneurial buyers, according to Alvarado. "We will see a return of institutions as the most dominant buyer of large assets," he says, adding three of the four top deals this year in the metroplex went to institutional investors. "The private capital people are no longer able to compete." He acknowledges there are exceptions.

[IMGCAP(2)]Zaya Younan, chairman and CEO of Los Angeles-based Younan Properties Inc., is one of the private capital exceptions who can arm wrestle with institutional players on the acquisitions circuit and come out a winner despite his 70% leverage to their often-mandated 50%. Younan says the company's strong cash position, high level of liquidity and innovative underwriting is the magic formula.

"It allows us to see opportunities and not all of the herd mentality and take position at the right values in key markets in the US. Seventy-five percent of the wealth made in real estate was made in a down market," Younan says. "We see many sellers in the market, but no real buyers." Younan has more than $500 million of contracts in hand, all ticketed to close in 30 to 45 days in Chicago, Houston and Southern California. The next closing should be 180 N. LaSalle St. in Chicago for $124 million.

"We think the opportunity to buy is now. We are working overtime to buy and close as many deals as we possibly can before the end of this year," Younan stresses. "We were contrarian in the past. We remain contrarian in the future. We react differently than others."

Like Alvarado, Younan says Lehman's commercial portfolio isn't primed for picking. An economist by degree, Younan believes Lehman's real estate values were undermined by negativity from short-sellers.

"We think this negativity is excessive. In the end, investors will realize they have punished this financial company far more than the negative exposure it had going into the credit meltdown," Younan asserts. "We think in the weeks to come, the rational will let the valuation come for this financial company."

By his calculation, Lehman's portfolio is three-to-one commercial versus residential holdings. "The values of commercial have not dropped, most are performing loans," Younan says. "We feel the market is being volatile and being manipulated by short-sellers. Sophisticated investors see there is no significant fundamental change or occurrence that caused this and perceive it as a short-term volatility."

The 150 bps rise in the past year in cap rates too is unwarranted in Younan's opinion. "At these cap rates and in this market, any deal you buy is a value-add," he says.

As the capital markets struggle for stability, Alvarado has expectations for the outcome. He hopes the "clearing-out exercise" will result in an understanding that "this perceived recession will be more regionalized than national or investors of debt and equity will start to analyze investments based on defined geographies and Texas will be a favorite locale."

Alvarado says the shake-up will get its harshest test next summer when loans start coming due and recapitalization will be hard to obtain. He believes deeds in lieu of could become as commonplace as they were in 2001 or the previous downturn in 1998. "We will have less than other parts of the country, but we will have some. It's inevitable," he says. "But like with other cycles, there are always vehicles created to address these needs. I am confident there will be a vehicle to address this need because there will be opportunities."

Younan's expectation is lenders, by first or second quarter 2009, will go back to their core business: to lend to responsible borrowers so they can make money. "This is a market where only the big players will survive. I am glad that all those smaller buyers went away," Younan says. "If there was any volatility, it was the volatility of those smaller buyers who did not have the ability to underwrite properly in a global, complex economic environment. We will end up with predicated, calculated growth without any outside noise."

Likewise, the valuation crisis will "correct itself in six to 12 months. It is a short-term financial market weakness," Younan contends. "We perceive this valuation environment as an opportunity for us to increase our portfolio and be an aggressive buyer. And when the market returns to stable, we will sell these assets at significantly higher prices."